ALI MOORE: Fund manager Perpetual has defended its investment in Gunns, the company planning to build a controversial pulp mill in Tasmania's Tamar valley.

Perpetual shares fell nearly 3 per cent today after it announced a downgrade in its earnings forecast for the first half of the year thanks to the global liquidity crisis. But it was the pulp mill that dominated today's Annual General Meeting, as Brigid Glanville reports.

BRIGID GLANVILLE: It wasn't just protesters who were angry about Perpetual's involvement with the Tasmanian pulp mill owner Gunns. Shareholders also demanded answers from management.

STEPHEN MAYNE, SHAREHOLDER: Perpetual should have forced Gunns to have more independent directors, to have an independent chairman and to not have a CEO who acts like it's a private company.

Perpetual owns three times as many shares as John Gay, the executive chairman, but you would never even know Perpetual existed in relation to Gunns.

BRIGID GLANVILLE: Dani Ecuyer is a Perpetual shareholder and is also standing in the marginal Sydney seat of Wentworth against the Federal Environment Minister, Malcolm Turnbull.

DANI ECUYER, SHAREHOLDER: The company had been very strong about stating what their investment principles were in particular, that they only invested in sustainable companies and companies with strong balance sheets. On both of those issues Gunns is failing very, very badly.

BRIGID GLANVILLE: Perpetual owns 15 per cent of the Gunns Forestry Group. At the company's Annual General Meeting in Sydney, Perpetual defended its investment.

ROBERT SAVAGE, CHAIRMAN, PERPETUAL: It's part of our decision process. We went through our normal policies and procedures. We assessed the risks, we took into account the views of the chief scientist. We met with the Gunns management. We had a number of discussions over the years with the Wilderness Society.

BRIGID GLANVILLE: It was clear that management also believe most shareholders are not concerned about the company's stake in the controversial project.

ROBERT SAVAGE: No, we haven't seen people disinvesting because of our investment in Gunns. We've been an investor in Gunns off and on for 17 years.

BRIGID GLANVILLE: Inside the AGM, the chairman Robert Savage shut down any questions about the board's inquiry into Gunns. But later on, he conceded the board had met to discuss Gunns but it was not about investing, it was about how to handle questions from the media and concerned shareholders.

ROBERT SAVAGE: We were discussing A, the conduct of this meeting and B, what our position should be regarding vis-a-vie the people we expected to ask questions at the meeting regarding Gunns.

BRIGID GLANVILLE: But it was clear that media strategy wasn't working.

REPORTER: Don't you think there is a responsibility that the board has to take given you are a major shareholder of Gunns and there's been a big debate surrounding the company?

ROBERT SAVAGE: Um, I mean other than telling you what happened and what happens and how we run our business, I don't know that I can answer that question.

BRIGID GLANVILLE: The fund manager was less reluctant to talk about its profit forecast, even though it's been dented by the global credit crunch. Managing director David Deverall says he expects operating profit for the first half of the year will rise around 10 per cent although it would have been 15 per cent but for the mortgage crisis.

DAVID DEVERALL, MANAGING DIRECTOR, PERPETUAL: One per cent of our funds have been impacted in terms of the credit spreads that have really blown out in the .. as a result of the credit crisis.

BRIGID GLANVILLE: The company says it's confident Australia has seen the worst of the meltdown in debt markets.